There was more trouble in paradise on Thursday.
Chinese developer Kaisa Group said a subsidiary missed a payment on a wealth management product, rekindling Evergrande contagion fears and underscoring the impact of Beijing’s property curbs on the operating environment.
Kaisa cited “unprecedented pressure on its liquidity” stemming from mounting hardships, including cascading downgrades and worsening sentiment. Its dollar bonds fell.
Somewhat disconcertingly, onshore debt is now along for the ride. A handful of yuan bonds were halted Thursday after plunging. Yields on Chinese dollar junk bonds jumped above 20%, prohibitive levels which effectively rule out refinancing for struggling developers being squeezed by plunging sales.
Last month, Kaisa called off investor meetings to the chagrin of the company’s debt, which tumbled (figure above). Ratings agencies followed up with downgrades. Fitch cited “limited funding access and uncertainty over the refinancing of a significant amount of US-dollar bond maturities and coupon payment through 2022 in light of ongoing capital-market volatility.”
The shares have lost nearly three-quarters of their value in 2021 (figure below).
Apparently, the total principal and interest outstanding on WMPs issued or guaranteed by Kaisa stands at around $2 billion.
I won’t pretend to know what percentage of that is owed to small investors, but I’d reiterate that Beijing has been careful to guard against the potential for missed payments on WMPs to stoke societal unrest.
For what it’s worth, this isn’t Kaisa’s first rodeo. As Bloomberg noted Thursday, the company was, in fact, the first Chinese developer to default on dollar bonds. (They’re a pioneer!) “It completed a debt restructuring in 2016 [and] has grown to become China’s third-largest dollar debt borrower among developers with more than $11 billion of bonds outstanding,” an article published Thursday read.
Kaisa is trying to raise money and is negotiating a repayment plan on relevant WMPs. In a statement, the group said it’s “making all efforts” to address the burgeoning liquidity crisis.
